FAQs
How do I know if it makes sense for me to refinance? How can I avoid having to get mortgage insurance on my mortgage? How much Homeowner's insurance coverage will I need to close the new mortgage? If I decide to lock my interest rate and rates go down, will the lender give me the current lower rate? Is it possible to obtain a no cost mortgage when refinancing your mortgage? Will the lender require an appraisal of the property? If so, will I receive a copy of it? I already own a home and I am looking to move up, do I need to sell or list my current home prior to making an offer on a new property? How will my real estate agent (or builder) and my lender work together to coordinate the closing? What are the typical terms of a traditional second mortgage? Once my home equity line has closed, what if I find I needed a bigger loan? How do I determine which type of secondary home equity financing is best for me?
First determine your financial mortgage related goals: i.e. are you looking to improve your monthly cash flow, reduce your mortgage term, do you need to take out cash utilizing the equity from your home? Obtaining the right mortgage for your particular needs could make sense even when rates are not at their lowest levels. First identify your goal and contact a mortgage professional for suggestions that would best help you meet your objectives.
Many borrowers who have less than 20% equity in their homes, choose a combination first and second mortgage (referred to as a piggyback mortgage) to avoid mortgage insurance (MI). The most common method of financing without MI is an 80-10-10 (an 80% 1st mortgage, 10% 2nd mortgage with 10% equity). Also available is an 80-15-5 (requiring an 80% 1st mortgage, 15% 2nd mortgage with 5% equity).
A safe bet is to buy a guaranteed-replacement-cost policy that will generally pay out 20-50% more than the face value of the policy to rebuild your home (this is also the preferred policy of lenders). A replacement-cost policy typically adjusts the amount of insurance each year to keep pace with rising construction costs in your area. It is important to note that local building codes require structures to be built to specific standards which could vary over time, if your home is severely damaged, you may be required to rebuild it to current codes. Even guaranteed-replacement-cost polices do not always cover this expense. However, many insurers offer an endorsement that will pay for the upgrading cost, it is a good idea to consider adding such an endorsement to your replacement-cost policy.
It depends upon the lender involved and how much of a rate decline has occurred. Some lenders may re-price the mortgage at a rate close to market if there has been a substantial rate decline (i.e. = or >3/8%) and some may prefer that a mortgage is canceled rather than re-price it at a market rate. Some lenders allow borrowers to lock and then float the rate down one time during the mortgage process, typically a borrower is required to bring in a fee of ½-1% of the mortgage amount which is then credited (or refunded) to them at closing. It is a lock fee the lender requires to insure the transaction will in fact close.
Yes. In fact no cost mortgages are extremely popular among refinanciers. Because a borrower pays no non-recurring closing costs, it is easy to analyze how soon money is saved on a monthly mortgage payment by refinancing. Many homeowners will consider refinancing for as little as .25% improvement to their mortgage rate with no-cost mortgage financing.
Yes. The property is the collateral for the mortgage, therefore an appraisal is almost always required and if a borrower pays for the appraisal he or she is definitely entitled to receive a copy of it.
In the current seller's real estate market, many buyers searching for property do not have the luxury of making an offer contingent upon the sale of their current residence. The solution may be either equity or bridge financing for those buyers who need the sale proceeds from their home in order to buy a new residence. These loans would be secured against their existing residence and would provide interim financing for the new residence until the property is actually sold. If a buyer does not need the equity from their current residence in order to purchase a new residence and they can qualify for a new loan carrying both the mortgages on the existing and the new residence, they could elect not to sell their existing residence or could choose to rent it.
Good real estate agents and builders keep in close contact with all parties involved in a transaction. In a typical sale, purchase contract contingencies (i.e. financing, inspections) require that an agent or builder's rep communicate well with all parties to ensure that the contingency deadlines are met. The real estate agents, builder, loan agent and escrow officer are dependent upon one another to close a transaction (no one gets paid until closing occurs) as well as for the referral of future business, so it is in their best professional interest, as well as their clients, to communicate with one another. Of course it is always a good idea for a buyer/borrower to keep in close contact with each of these service providers for a status and progress report.
A traditional second mortgage has a fixed rate of interest with equal monthly payments applied over the life of the loan. The rate of interest is determined by a borrower's equity and credit and is usually a few percentage points higher than rates on first mortgages. The typical loan term typically ranges between 15 to 30 years.
Unless your personal banker has provided your home equity line, it is likely that you will need to re-apply for a loan if you plan to exceed the maximum terms of the existing loan agreement. However, this process could be streamlined if the lender already has much of your documentation on file.
A reasonable guide for making this decision is to evaluate your intended use for the funds. If you have a pre-determined expense that will require a lump sum or fixed payment (i.e. major home improvements for which you have a written estimate) then you may prefer a traditional second mortgage with rate and term that are fixed for the life of the loan. Conversely, if you have a stream of undetermined expenses (i.e. misc. home improvements, misc. consumer purchases) then you may prefer the check writing convenience of a home equity line. With a home equity line of credit, you pay interest only on the funds you use or need, therefore with unforeseen expenses this may be the most cost-effective approach.